There is no doubt Ethical investing is on the rise, especially with the new generation of investors starting their investment journey.
What is Ethical Investing?
Ethical investment is also known as sustainable investment and socially responsible investment (SRI). The term describes an investment process that incorporates environmental and social factors when selecting investments, in addition to the objective of achieving a competitive financial return.
Managed funds, Super Funds and ETF providers have all jumped on board giving the investor power to vote with their money and feel good about their investments.
These Fund managers provide screens for both positive and negative criteria to determine if they will be held in their portfolios. Some Ethical funds will avoid sectors that are considered harmful altogether (Tobacco, Controversial weapons, Pornography, Fossil fuel industries etc) while others will ‘tilt away’ from sectors considered harmful. To a lesser degree, other funds will engage with management teams / companies and focus on their ESG (Environmental, Social And Governance ) principles and ongoing improvements.
Lets have a look at some Ethical ETF’s on the ASX and how they are performing against their relative index in the past year. (1 Year return, from their website)
VAS (ASX 300 / Australian index)
Very interesting and look at FAIR ! Beating the ASX index comfortably.
As of 27/2/19 – ETF Tracker
Countries & Emerging Markets
UBU (USA Ethical ETF)
UBE (Europe Ethical ETF)
UBP (Asia APEX 50 Ethical)
UBJ (Japan Ethical ETF)
IVV (S&P 500 US index marker)
As you can see UBU and the S&P 500 are very close. Other ETFs are obviously affected by macro factors associated with their country, so can’t really be compared properly to IVV and should be compared to their relative index.
ETHI (BetaShares Global Sustainability Leaders ETF)
UBW (World ex Australia Ethical ETF)
ESGI (International Sustainable Equity ETF)
VESG (Ethically Conscious International Shares Index ETF)
IOO (Global 100 index marker)
Wow, Look at ETHI, beating the Global index easily.
As of 27/2/19 – ETF Tracker
There seems to be some good tail winds for Ethical ETF’s.
It’s a growing space and companies ethically responsible more often than not are associated with better Management Teams. The growth in the space is pressuring companies to lift their corporate social responsibility. They give the investor the power to allocate capital toward companies whose practices and values align with their personal beliefs.
There has been a false perception over the years that ethical investing involves sacrificing some return but the data tells a different story. Core Australian responsible investment share funds outperformed the S&P/ASX 300 index and average large-cap Australian equity funds over one, three, five and ten years to the end of 2015, RIAA data shows.
Risk is lowered. Owning companies in harmful sectors has never been riskier.
When writing this blog I’ve also noticed some of the better performing funds have been certified by the RIAA (Responsible Investment Certification Program). Research is essential for accurately determining whether an investment group coincides with your ethics.
For further information on ETF’s, a check out our ETF trackers here:
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- Individual Countries / Emerging Markets / Long / Short
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Last updated February 2019
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This is not investment advice. Follow this information at your own risk and if unsure seek the help of a professional Financial Advisor.